Accounting Chapter 5

Two important ratios that help in understanding a company's effectiveness in managing receivables are the:

average collection period receivable turnover ratio

The _____ ratio shows the number of times during a year that the average receivable balance is collected.

receivables turnover

The direct write-off method is used when

uncollectible accounts are not anticipated or are immaterial.

The allowance method estimates

uncollectible accounts.

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for uncollectible accounts.

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income.

not affect

Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?

$18,000

When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?

An entry to reinstate the account receivable and an entry to record payment.

Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?

As a noncurrent asset

Amend Inc. debited Accounts Receivable and credited Allowance for Doubtful Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______.

Cash; Accounts Receivable

When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?

Credit Allowance for Uncollectible Accounts. Debit Accounts Receivable

Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?

Credit to Accounts Receivable Debit to Allowance for Uncollectible Accounts

The allowance method is required by ______ . (Enter one word or abbreviation per blank)

GAAP

Where is a note receivable reported in the balance sheet?

In either current or noncurrent assets, as appropriate.

When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?

Make an adjusting entry at the end of the current period to accrue the interest earned.

Net revenues is calculated as total revenues minus which of the following items?

Sales allowances, Sales discounts, Sales returns

The percentage-of-receivables approach to measuring bad debt expense is referred to as _____ method.

a balance sheet

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable.

A trade discount is

a percentage reduction from list price.

The percentage-of-receivables method of estimating bad debt applies ____ to _____.

a single percentage; accounts receivable

A(n) ______ _______ is the legal right to receive cash from a credit sale and represents an asset of the company.

account receivable

An informal credit arrangement with a customer for payment to be received after the sale is classified as a(n)

accountable recievable

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the _______ method of accounts receivable. (Enter only one word.)

aging

The cost of estimated accounts receivable that will not be collected is referred to as ____ _____ expense.

bad debt

The estimated expense for accounts that may not be collected is referred to as

bad debt expense

The journal entry to record bad debt expense includes: (Select all that apply.)

debit to bad debt expense credit to allowance for uncollectible accounts

Notes receivable normally has a(n) _____ balance because it is classified as a(n) ______ (Enter only one word per blank.)

debit, asset

The receivables turnover ratio and the average collection period provide information about a company's

effectiveness in managing receivables

When the allowance method is used, the write-off of an uncollectible account:

has no effect on net income

Total revenues less discounts, returns, and allowances are referred to as ________ revenues. (Enter only one word.)

net

Two entries are required when a previously written off account is collected. These two entries include:

reinstate the account receivable record the collection on the account receivable

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n) ______ ______ (Enter only one word per blank.)

sales return

With the allowance method, bad debt expense is recorded

at the end of the period when bad debts are estimated.

A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer.

decreases; retained

The allowance for uncollectible accounts is a contra account to

accounts receivable.

Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?

$93,000

Warner Corp. sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?

Debit Sales Returns; credit Accounts Receivable.

Planters Corp. wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a

credit to Allowance for Uncollectible Accounts.

Adrian Corp. sells goods on account for $100,000 on May 1. The customer paid for the goods on May 10. On May 15, the customer returns $40,000 of the merchandise. The entry Adrian makes on May 15 will include the following: (Select all that apply.)

debit to Sales Returns credit to Cash

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

The formula for calculating interest on a note is

face value x annual rate x fraction of the annual period.

The direct write-off method is required for

income tax purposes.

A calendar-year-end company that accepts a 3-month interest-bearing note on December 1 must accrue revenue on December 31. (Enter only one word.)

interest

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales _______

allowance

Accounts receivable should be classified as a(n)

asset

The financial statement effects of recording an allowance for estimated sales returns are that: (Select all that apply.)

assets decrease equity decreases net income decreases

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate.

A trade discount is recognized

by reducing the revenue amount recorded.

Sales Returns and Sales Allowances are _____ ______ accounts and require a debit entry to increase the account.

contra revenue

The Sales Returns and Sales Allowances accounts are classified as

contra revenue accounts.

Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account.

contra-asset

The account "Allowance for Uncollectible Accounts" normally has a ______ balance. (Enter only one word.)

credit

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

credit sales

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)

credit sales, sales on account

The normal balance of notes receivable is:

debit

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include

debit Allowance for Uncollectible Accounts.

A trade discount is a reduction from the list price, which is used to: (Select all that apply.)

disguise real prices from competitors change prices without publishing a new catalog give quantity discounts to customers

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______.

estimated; at the end of the year

True or false: Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.

false

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.

future; current

(Face value x annual interest rate x fraction of the annual period) is the formula for

interest on a note.

An aging schedule classifies accounts receivable based on

length of time outstanding.

Receivables not expected to be collected should

not be counted in assets of the company.

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.

note receivable

A formal credit arrangement between a creditor and debtor is called a(n)

note receivable.

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n) _______ discount.

sales

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n) ________ discount.

sales

Which of the following is a discount that is a reduction in the sales price if the customer pays within a specified time period

sales discount

When a customer returns a product for a refund, in which account is the entry recorded?

sales return

For accounts receivable, the longer an account is outstanding,

the more likely it will prove uncollectible.

The receivables turnover ratio indicates

the number of times during a year that the average accounts receivables were collected.

Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n):

decrease in Accounts Receivable

A sales return occurs when a customer returns a product for a full refund, whereas a sales __________ is when the customer keeps the product and obtains a partial refund.

allowance